المجلة الجزائرية للدراسات المالية والمصرفية
Volume 3, Numéro 1, Pages 235-267

Banking Development And Economic Growth In Jordan: Evidence From Vecm Model

Authors : Yousfi Imane .

Abstract

This study aims to investigate the short as well as the long run and dynamic relationship between banking development and economic growth in the case of Jordan. By employing the granger causality test, the Cointegration test and the Vector Error Model (VECM), to see whether the financial system influences economic growth and whether growth transforms the operation of the financial system in the long run. The data used in this study were collected from the period of 1993 to 2015. The GDP growth rate is used as a proxy of economic growth, whereas, total financing, total deposits and investments (banking size) are expressed as ratios of GDP and these variables are used to measure the banking development in Jordan.The results reveal that all the series are non-stationary attheir levels but stationary at their first difference and they are integrated for order one I(1). Furthermore, the results from the granger causality test for the short run and the VECM for the long run reveal that both financing and investments in Jordanian banks have a statistical significant impact on the economic growth in both short and long run. However, the deposits show an insignificant impact on the economic growth in both short and long run. Moreover, the economic growth doesn’t have any significant impact on the financing, the total deposits and the total investments in Jordanian banks.

Keywords

Banking Sector Development, Economic Growth, VECM, Granger Causality, Jordan